The 53 year old Australian made his offer in an email to the game’s governing body.
The offer followed last Sunday’s ball tampering row which ended the fourth Test at The Oval - the first forfeit in test cricket’s 129 year history.
ICC boss Malcolm Speed says Darrell Hair was under great stress when he wrote the resignation offer.
"Darrell had no dishonest, underhand or malicious intent. He was seeking a solution that was in the interests of the game," Mr Speed said.
Nevertheless ICC boss wrote back to his fellow Australian to tell him his offer was "entirely inappropriate".
Mr Speed says after receiving the letter he consulted a number of lawyers and they all advised him to make it public.
"I have consulted independently of each other. They offered the unanimous view that the ICC was required to disclose it," he said.
Hair later withdrew the offer but the ICC will decide next weekend whether to take any action against him.
Pakistan hails victory
Pakistani officials say the resignation offer is a victory for the team and vindicates its actions in the Test against England.
Hair was one of two umpires officiating in the fourth and final Test between England and Pakistan.
The umpires awarded the home side five penalty runs because they believed Pakistan had illegally tampered with the ball.
The Pakistani team was incensed by the decision and refused to return to the pitch after the tea interval.
The match was eventually forfeited and England took the series 3-0.
Pakistan now believes it could be cleared of the charges.
"This is a huge victory, and it makes a strong case for us to be cleared on ball-tampering," Pakistan tour manager Zaheer Abbas told the BBC.
"We were very confident that we hadn't tampered with the ball - we didn't like the way the whole thing was projected to the world.”
“It has also vindicated our case,” he said.
Hair’s email
Darrell Hair sent his email to Doug Cowie, the ICC umpires and referees manager on Tuesday.
Hair said: "I am prepared to retire/stand down/relinquish my position on the elite panel (of umpires) to take effect from August 31, 2006, on the following terms.
"A one-off payment to compensate the loss of future earnings and retainer payment over the next four years which I believe would have been the best years I have to offer ICC and world umpiring.
“This payment is to be the sum of (US dollars) 500,000 - details of which must be kept confidential by both parties,” he wrote.
The sum was to be paid directly into Darrell Hair’s account by August 31, 2006.
"This offer in no way precludes me taking legal action and/or instigating libel suits against various sections of the electronic and print media for comments made either previously or in the future."
Difficult time for Hair
Mr Speed says Darrell Hair has been in a difficult position since Sunday’s row erupted.
"I'm stating the obvious by saying as a result of this disclosure that position has been made more difficult,” Mr Speed said.
"I said to Darrell that while this is a serious issue, there are issues in relation to his contract and to the ICC's Umpires' Code of Conduct.
"I said to him he's not sacked, he's not suspended and he has not been charged. We are in a very early stage of dealing with this issue."
Hair responds
Later Friday, Hair issued a statement to clarify his position.
"This correspondence was composed at a very difficult time and was revoked by myself two days later after a period of serious consideration," said Hair.
"There was no malicious intent behind this communication with the ICC.
"I am anxious that the Code of Conduct hearing takes place as soon as possible so that these matters can be resolved and allow me to move on with my umpiring.
Hair has since said he will not be making any further public comments and has asked that his privacy be respected.
ICC meeting
The ICC executive board will meet at its headquarters in Dubai on Saturday September 2, said Percy Sonn, the ICC president.
"Ever since last Sunday this ongoing situation has been marked by a succession of entirely unfortunate and entirely avoidable over-reactions," Mr Sonn added.
"What we need now is for everyone to try to switch their attention to on-field matters once more."
Mr Sonn said Pakistan’s Cricket Board chairman Shaharyar Khan has assured him the tourists will play their scheduled matches.
Pakistan is due to play one-day matches against England including a Twenty20 at Bristol on Monday.
It will be followed by five limited overs internationals starting at Cardiff on Wednesday.
This is despite a disciplinary hearing in London to hear allegations of ball tampering against Pakistan captain, Inzamuam-ul-Haq.
He will also answer charges of bringing the game into disrepute.
The hearing was due to be held on Friday but was postponed because ICC chief match referee Ranjan Madugalle was unable to hear the case for personal reasons.
It will now be heard in mid-September.